- Coinbase urges SEC to lift outdated crypto bans to improve regulatory understanding.
- Grewal proposes limited crypto holdings and temporary waivers for SEC staff.
- Broader federal shifts toward flexible crypto policies support reassessing SEC restrictions.
Coinbase has requested that the Securities and Exchange Commission (SEC) allow its staff working on cryptocurrency regulations to buy, hold, and use digital assets. The move follows Coinbase Chief Legal Officer Paul Grewal’s letter to the Office of Government Ethics (OGE) and the SEC requesting legal advice, now excluding SEC staff from engaging in digital currencies.
In a letter dated April 22, Grewal urged the OGE to update Legal Advisory 22-04, which restricts SEC employees from buying, holding, or using crypto assets. Grewal argued that the restriction is outdated and unnecessary, given that most cryptocurrencies are not classified as securities. He noted that barring staff from using the technology they regulate could hinder the development of effective digital asset policies.
Grewal emphasized that meaningful technology regulation demands a deep understanding, and true understanding can only come through direct use.
He emphasized that the technology is not a security, and regulators interacting with it do not inherently present a conflict of interest. Grewal asserted that the restriction limits regulatory progress rather than serving its intended purpose. Additionally, he argued that regulators tasked with designing a workable and effective framework for digital assets need to be familiar with the technology.
Request for Temporary Waivers
In addition to calling for the legal advisory to be rescinded, Grewal wrote to newly appointed SEC Chair Paul Atkins. In his communication, Grewal requested that the Commission issue temporary waivers to the SEC’s Crypto Task Force members and other staff directly involved in digital asset regulation.
He then highlighted that temporary waivers have been made in similar advisory cases, implying that the same move would not be out of place. He recommended that staff should be allowed to own major cryptocurrencies and stablecoins, but their values should be limited. This action aligns with other federal securities regulators to become more lenient on digital assets.
Grewal noted that limiting holdings would better allow the Commission staff to try the technology and develop supervisory capability in the long run. He argued that, according to the Office of the Inspector General, regulators must engage with those technologies to regulate them.
Grewal’s move comes as other federal agencies are reviewing their policies on activities related to cryptocurrencies. Recently, the Federal Reserve and other agencies made remarkable changes and removed prior guidance that compelled banks incorporated in the USA to get approval in matters dealing with cryptocurrencies.
The outlooks of various regulators tend to favor more liberal policies. Grewal urged the same remedy in his letter to the OGE. He corrected this movement, stating that lifting the SEC staff crypto ban would be consistent with the actions of other agencies.
Calls for Regulatory Reassessment
Those in support of the current restrictions that bar the SEC staff from holding cryptocurrencies say this is akin to denying Federal Reserve employees the ability to own USD. However, some argued that such a restriction effectively avoids conflict of interest, insider trading, and other ethical concerns.
Regarding Grewal’s communication, the fight is still raging over how regulators should conduct themselves with the technologies they regulate. The Coinbase legal officer pointed out that full or partial removal of the constraint would allow the SEC to formulate better rules on the sector.
